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Friday, May 9, 2014

Puff the Magic Draghi

He huffed and he puffed and he blew the euro down. Puff the Magic Draghi delivered another breath of fire from the ECB's bully pulpit yesterday, raising the stakes with more word play that the ECB would be "comfortable taking action in June". While there seems to be a growing consensus of "this is it - they're going to do it", we would urge caution and consider the trend - as well as the structural transmission ambiguities that more unconventional monetary policies could impart on the euro. Less we forget, the historic record is not that impressive, when one considers the cause and effects between QE and the native currency, or the fact that the euro continues to climb one of the largest walls-of-worry ever constructed. Although we understand Draghi's contractual agreements with jawboning the currency lower when he can, the truth is its effects are short-lived and the eventual breakout - should it come, more severe as the short-base grows increasingly entrenched. From a comparative point-of-view with the historic deflationary trend of the yen - circa 98-05, Draghi's trying to prevent the red box outcome from materializing by staunchly defending 1.40 for now. Of dungeons and dragons, "Whatever it Takes" has come with existential consequences in an asymmetric monetary union.

S hips that pass in the night, and speak each other in passing, only a signal shown, and a distant voice in the darkness; So on the oc...

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This is not investment advice. Erik Swarts is not a registered investment advisor. Under no circumstances should any content from this website be used or interpreted as a recommendation for any investment or trading approach to the markets. Trading and investing can be hazardous to your wealth. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This is strictly for educational purposes only.